Are Recent Rising Interest Rates Impacting Your Retirement Decision?
Written By Todd Strada
In the last few years of the current economic rebound, the Federal Reserve has taken numerous actions to help keep our economy from going back into its 2008 swoon. One such measure, referred to as "quantitative easing", is an unconventional monetary policy used by central banks to increase money supply and stimulate the national economy. With this policy, interest rates have stayed consistently lower than they were prior to 2008. From a pension perspective, these historic lows have allowed participants, who are part of pension plans that allow for lump sum distributions, to cash in on some higher than normal payouts tied to their accrued benefit. Is that time coming to an end?
Based on data from the pension plans that Findley Davies administers, we are seeing many more of today's retirees working past their normal retirement date than they did years ago. Is this because of their nest egg being hit by the 2008 financial crisis or perhaps fear of another financial meltdown? Either way, the benefits of lower interest rates for those looking to cash in on a lump sum may be at a crossroad. In the last couple of weeks, Federal Reserve Chairman Ben Bernanke indicated that he expects interest rates to rise in the near future. This not only had dramatic impact on the financial markets, but also on the thought process of retirees continuing to work by trying to time interest rates in their favor. For some of the plans we administer with quarterly interest rate changes, we have seen a significant uptick in estimates solely focused on lump sum amounts. So it is clear that someone out there is watching the market and its impact on retirement benefits closely. It might be time for the rest of us to take a closer look as well.